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Mr. Christopher Gill (Ludlow): During the period to which the Secretary of State refers, Britain was a member of the exchange rate mechanism. The right hon. Gentleman advocates fixed exchange rates. Does not he realise that on both occasions in the 20th century when Britain joined fixed exchange rates, unemployment soared? From 1925 to 1931, unemployment increased from 1.25 million to 2.9 million, and between 1990 and 1992, it increased from 1.65 million to 2.85 million. Does the right hon. Gentleman not realise that that is the effect on employment of going into fixed exchange rates? Does it not register with him that that is a powerful argument why we should never join the single currency?

Mr. Byers: I would like to know whether the right hon. Member for Wells (Mr. Heathcoat-Amory) agrees with that statement.

Mr. Gill: The right hon. Gentleman should answer my question.

Mr. Byers: I will answer the question, but I am interested to know whether the statement that the hon. Gentleman made represents Conservative party thinking on the single European currency. I think that it probably does, as far as the Members sitting on the Opposition Front Bench in this debate are concerned. One can tell; we know what the reality is. These are principled people sitting opposite me, and they believe strongly that the United Kingdom should never join the single European currency. [Interruption.] I am pleased to see the hon. Member for Rutland and Melton (Mr. Duncan) nodding his head in agreement with that.

Mr. Bercow: Will the right hon. Gentleman give way?

Mr. Byers: No, I want to answer the legitimate question raised by the hon. Member for Ludlow (Mr. Gill).

There is a tendency among certain members of the Conservative party to blame the rest of Europe for all the problems that have been created over a number of years.

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The difficulties that were created in the early 1990s came about as a direct result of the irresponsibility of the Tory Budgets of 1987 and 1988. The then Chancellor faced a choice. There was a strong economy, as there is today. He chose to act in an irresponsible way, introducing swingeing tax cuts that were applauded at the time. In the Budget of 1988, the basic rate of income tax was reduced by 2p and the higher rates above 40 per cent. were abolished. The problems of the early 1990s were a result of that.

That is why we have chosen prudent tax cuts, which are targeted, and also to invest for the long term. That is the Government's approach. We have built a strong economy and we now have the foundations on which we can invest in the future to create wealth that will benefit all our people.

Mr. Bercow rose--

Mr. Byers: I will now give way to another anti-European.

Mr. Bercow: My hon. Friend the Member for Rutland and Melton is living proof that size is not everything. He has a distinguished track record in business, unlike the right hon. Gentleman, who has never worked in a company in his life.

Given that the Secretary of State is now auditioning unconvincingly for the role of high priest of prudence, will he tell the House what assessment he has made of the impact of the change in the rules on the use of capital receipts from the sale of council houses on the size of interest repayments on local authority debt?

Mr. Byers: That is a very important question, and I know that the hon. Gentleman will receive a reply from the Paymaster General when she winds up the debate later.

Mr. Alan Duncan (Rutland and Melton): Will the right hon. Gentleman give way?

Mr. Byers: I want to make some progress, but I will give way to the hon. Gentleman in a minute.

The situation to which I was referring obtained in the early 1990s. We have now managed to move away from the stop/go economy of those days. As a result, living standards are rising for many people. Someone with a £60,000 mortgage now is paying £315 a month less in interest payments than in 1990. Someone with a £100,000 mortgage is now paying £600 a month less than in 1990. That makes a real difference to hard-working people.

As we cut the costs of economic failure by cutting public debt, reducing unemployment and maintaining low inflation, we are freeing up the finance to invest in the infrastructure and high-quality public services that our country so badly needs. That is money that the Conservatives would simply take away.

It was interesting that the right hon. Member for Wells, in opening the debate, confirmed the Conservative position of sticking to investment of just 2.25 per cent. The Budget announced yesterday by the Chancellor means that spending will now grow by 3.7 per cent. a year

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over the next three years. The Conservatives have stated that their spending is to be capped at 2.25 per cent. or less. We need to know how they intend to fill the spending gap that would clearly result. If 2.25 per cent. were stuck to for all three years, a gap of more than £16 billion would result. If we were to be generous and suggested that they might postpone the 2.25 per cent. restriction in the first year, limiting it to the second and third years only, they would still have to find cuts of a little more than £10 billion. That is the Conservatives' position, and they have not stated where those cuts would come from.

In the election campaign, the British people will know that there is a choice: prudent, long-term investment in high-quality public services, which we support, or long-term cuts in public services that would come about under the Conservatives. Without risking our hard-won stability, we are now investing in public services, increasing opportunities and prosperity for hard-working families and supporting the small firms that are the lifeblood of our economy.

Mr. Duncan: It was eight years ago that I wrote "An End to Illusions", but I am grateful to the Secretary of State for pointing out that it was at least intellectually honest and cogent, and that it covered a difficult time that needed analysis.

Will the right hon. Gentleman in return be equally intellectually honest with the House and admit that the benefits that the Government have enjoyed over the past couple of years have been that receipts have been greater than planned, and that expenditure on welfare payments has been less? However, we are probably at the top of the economic cycle, and his plans are on schedule to outstrip the growth in the economy as a whole. Will he therefore admit that as soon as the economy turns, he will face a squeeze for which he and his Administration will have to be accountable to the general public?

Mr. Byers: I should like to make a number of points in response to that question. First, the fiscal rules are set in a very cautious way, with an in-built barrier or margin against particular difficulties equivalent to 1 per cent. of GDP. In addition, the hon. Gentleman is right to say that tax receipts have been buoyant; they have been higher owing to a number of factors, the main ones being higher earnings and increased employment. Those are the signs of a successful economy, and we make no apology for them.

Our first ambition must be to secure substantial productivity growth, as the right hon. Member for Wells mentioned in his opening speech. That is why the Budget proposed further reforms to promote competition and innovation, and to support enterprise. Competition has long been recognised as essential to an efficient economy. It creates pressure to innovate, to keep costs down and to improve the quality and choice of products available, and it ensures that resources are allocated to the most efficient firms. Competition is also the most effective way of ensuring that consumers receive a fair deal.

The Government remain anxious to ensure that all sectors of the economy are exposed to competition. The Office of Fair Trading yesterday published its report to the Government on competition in the market for professional services. Today I wish to give the Government's response to that report.

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The Director General of Fair Trading concludes that the professions should be fully subject to competition law and that unjustified restrictions on competition should be removed. He raises questions about a number of existing restrictions, including the distinction between Queen's counsel and junior barristers, which is said to have significant effects on competition. He also questions the operation of the system as a quality mark and its value to consumers.

The director general comments on the number of rules of various professional bodies preventing or hindering the establishment of multi-disciplinary practices. Such practices could bring together accountants, lawyers and other professionals such as surveyors and estate agents. Potential benefits such as overhead cost savings, more flexible allocation of resources and more open access to the professions could be gained as a result. That could help smaller businesses in particular.

The director general noted that solicitors employed by non-solicitors can act only for their employers. Removal of that law could allow solicitors working in different business structures to compete on a broader front. He also noted that solicitors and accountants are not allowed to make payment to a third party for work that is referred to them. Such a restriction may be hampering the development of an online market place that would bring clients and professionals together.

The director general states that the Law Society prohibits seeking business by telephone from potential clients and comparative fee advertising. He draws attention to two further restrictions and believes that further implementation of sections 34 to 52 of the Courts and Legal Services Act 1990 would allow banks and building societies to provide conveyancing services. Solicitors have 95 per cent. of the market. Further implementation of sections 54 and 55 could increase competition in the market for probate services. Where lawyers compete for work with non-lawyers, perceptions of legal professional privilege can distort competition. It falls to Ministers to deal with all those restrictions.

We recognise that those are complex areas. We shall therefore consult on the report, and it seems appropriate to consider comments on the director general's analysis before taking further action. The Government will therefore issue a formal consultation paper addressing those issues and inviting comments. However, on one recommendation, I feel that action should be taken now.

Under schedule 4 of the Competition Act 1998, there is an entitlement to request that professional rules be excluded from the provision in that Act that prohibits anti-competitive agreements. The director general believes that the regime weakens the incentives not to engage in anti-competitive activity that exist elsewhere in the economy, as the threat of financial penalties and action for damages does not exist. He recommends that the provision should be removed. The Government agree that the entitlement to exclusion should be removed and that the professions, as a result, should be fully subject to competition law.

We need a tax system that supports companies large and small. We have already reduced corporation tax from 33p to 30p, but in the new, knowledge-based economy we need a tax regime that reflects the nature of that new economy. That is why we propose to introduce a new

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tax relief for intellectual property and goodwill. We shall consult on the detail on relieving tax when companies sell substantial shareholdings.

Enhanced capital allowances since 1997 and new tax credits to encourage investment and innovation have already saved businesses more than £1 billion, with a third of a billion pounds being saved by manufacturing. We shall now consult on proposals for a new tax credit aimed at boosting research and development and innovation in larger companies. That new credit is designed to complement the R and D tax credit for small companies, which we introduced in April 2000.

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